Investors are always looking for growth in small-cap stocks like Coastal Greenland Limited (HKG:1124), with a market cap of HK$999m. However, an important fact which most ignore is: how financially healthy is the business? Understanding the company's financial health becomes crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. We'll look at some basic checks that can form a snapshot the company’s financial strength. However, this is just a partial view of the stock, and I’d encourage you to dig deeper yourself into 1124 here.

Does 1124 Produce Much Cash Relative To Its Debt?

1124 has shrunk its total debt levels in the last twelve months, from HK$4.6b to HK$2.4b , which also accounts for long term debt. With this reduction in debt, the current cash and short-term investment levels stands at HK$778m to keep the business going. Moving on, operating cash flow was negative over the last twelve months. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of 1124’s operating efficiency ratios such as ROA here.

Does 1124’s liquid assets cover its short-term commitments?

With current liabilities at HK$1.6b, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.89x. The current ratio is calculated by dividing current assets by current liabilities. However, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.

Is 1124’s debt level acceptable?

1124 is a relatively highly levered company with a debt-to-equity of 49%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses.

Next Steps:

Although 1124’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for 1124's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Coastal Greenland to get a better picture of the small-cap by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 1124’s future growth? Take a look at our free research report of analyst consensus for 1124’s outlook.

2. Historical Performance: What has 1124's returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.

3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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